Mixed Trend Yet On Bargain Hunting, Reactions To Early Filers, Sept. Inflation, Q3 Reports

Market Update for the Week Ended October 14 and Outlook for October 17-21

Trading activities on the Nigerian Exchange remained in the corrective wave, waiting for a reversal as signalled by the week’s mixed trend and positive outing on an improved buying momentum ahead of the earnings reporting season. This is coming after five successive weeks of decline on investors’ reactions to the most recent interest rate hike, among other economic headwinds.

The impressive Q3 earnings from United Capital and the mixed numbers from Geregu Power the newly listed power company on the exchange, had given insight to what investing public should expect at this season as all eyes are on September inflation report and more corporate earnings in the coming weeks. These are expected to shape the market and create opportunity for discerning players to make money.  Just as earnings season had finally kicked off with Infinity Trust Mortgage Bank, Living Store Mortgage Bank and others as mentioned earlier.

The benchmark NGX All-Share index recorded a marginal weekly gain after pulling back for serval weeks to critical support levels, rebounding slightly on buying sentiments in the financial sector and others. Bargain hunters took advantage of the prevailing low prices and attractive valuation of stocks to position ahead of expected data from the National Bureau of Statistics and listed companies.

Stock prices across major sectors of the market witnessed mixed buying and selling sentiments, including large cap stocks and blue-chip companies, while position taking hit the consumer goods and energy sectors, as the market ranged on profit taking and fears during the period under review. It is noteworthy that recent earnings from the banking sector and others reveal the undervalued state of the market and individual stocks, amid expectations that the prevailing low Price to Earnings ratios and divergence in real value and current market prices could inspire a rebound.

However, factors and seasonality needed to support the market are unfolding amid the inflationary pressure and slow economic recovery.

As the market signals a bear rally in the midst of earning expectation, macroeconomic data, last quarter seasonality and other factors such as the ongoing preparations for the 2023 general elections and the expected uncertainty. Next week, players are looking forward to the September inflation report, as well as more corporate earnings, even as the market begins reacting to results from early filers such as United Capital, Infinity Trust Mortgage Bank, Geregu Power, among others.

There is also the expected interim dividend paid from the third quarter numbers by Total, Nestle Nigeria, Nigerian Breweries, and others like Presco and Lafarge Africa, if such policy is sustained. Earnings reports are expected to drive the   market in the next four to five weeks.  Your ability to take the opportunity this earnings season creates, will determine your level of profitable trading.

The low supply and demand in the market is also an indication that smart money can mark-up the price any time and without notice. We urge investors to, however, wait for confirmation of the trend, with bargain hunters already taking advantage of the back-to-back pullbacks to position in value stocks with strong earnings capacity.

Meanwhile, market volatility continues to support technical traders in the midst of prevailing mixed sentiments, resulting from profit taking and fear in the midst of relatively low volume and higher earnings yields that signal a possibility of higher payouts at the end of the year. This is especially true of those that suffered losses in the midst of the strong numbers posted by these companies, thereby revealing their undervalued state, as seen in the high dividend yields pointing to the possibility of discerning investors taking position to hedge against the soaring inflation.

The NGX index’s action on a weekly time frame is still trading below the ‘T line’ and flat on 50-day moving average, as buying sentiments are renewed in some sectors. Portfolio rebalancing has increased in the midst of expected Q3 corporate actions. It is, therefore, time to use technical tools, if you have been ignoring the charts and fighting the trends, it is your chance to step up your game. At this current market mood, investors and traders should target leaders in the various sectors with strong fundamentals, and positive technicals as the market is on uptrend movement on the strength of funds entering the equity space.

To navigate this current market situation profitably using fundamental and technical analyses to run, join investdata live sessions at noon every trading day “and also get investdata technical toolbox to play the current state of the market do suggest that discerning investors are gradually becoming greedy, while others are fearful, as seen in the recent range market. Despite the mixed sentiment witnessed, it is time to go shopping for undervalued stocks, sectors and the next insider playing opportunity.”

Oil price sustained its oscillation as it pulled back again to trade at $91.63 on fear of inflation data and recession, in the midst of supply tighten due to Russia Ukraine war. Also, weak demand and fear of recession around the globe on hawkish monetary policy by central banks, just as China COVID-19 lockdown come to an end. The up and down movement of oil price also continues to drive volatility in the face of rising interest rates and inflation. Despite the bailout package of the Chinese government to simulate economic activates and stable employment, as well as that of Germany aimed at managing the energy crisis.

Movement Of NGXASI

In the four-day trading week, following the declaration of Monday, October 10, as public holiday by the Federal Government, the NGX index had a mixed trend of two sessions each of up and down market. Major sectors and blue chip stocks recorded gains, driving the oscillation and pullbacks that create opportunities for players to reposition their portfolios, amid expected macroeconomic data and earnings report.

Trading for the week opened on a positive note, extending the previous session’s gain, by 0.50%. This was however short-lived at the midweek with a marginal 0.07% loss that was sustained on Thursday when the index lost another 0.02%. There was a seeming weak rebound on Friday when the NGXASI chalked 0.09% on bargain hunting in value stocks that suffered losses, bringing the week’s total gain to 0.46%, compared to the previous week’s 3.41% loss position.

In all, the benchmark NGXASI chalked 217.61 basis points, closing at 47,569.04bps, compared to the week’s 47,351.43bps opening level, after touching an intra-week high of 47,664.66bps and a low of 47,195.25bps. Market capitalisation also rose by N119bn, representing a 0.46% appreciation in value during the period to closed at N25.91tr, from the previous week’s N25.79tr,

During the period under review, the advancers’ table was dominated by low and medium cap stocks, amid rekindled buying interests that hit high priced stocks due to volatility and mixed sentiments. Also notable is the fact that investors are taking advantage of the price corrections to buy into value and high dividend yield companies.

Market breadth during the week turned slightly positive as advancers outnumbered decliners in the ratio of 25:24 on buying sentiment as revealed by investdata sentiment report showing 80% ‘buy’ volume and 20% sell position. Money Flow Index improved slightly to 23.76bps, from the previous week’s 22.98 points, an indication that funds entered the market on a weekly chart to reflect position taking in the market.

The NGX index action signaled the onset of the early accumulation phase on the weekly chart and ranging market on a daily time frame, with low traded volume signaling cautious trading by investors, as the bear transition continued on the daily time frame to trade below the T line on a buying sentiment and slow momentum. This was despite signaling a reversal on Friday as the market remains relatively strong in the midst of increased volatility and low liquidity. We note also that the index is trading below the ‘T’ line and on 50-day moving average on a weekly time frame to signal possibility of sustained rebound, which the state of Q3 financials and September consumer price index can support further or pullback.

Mixed Sectoral Indices

Sectorial performance indexes for the week were mixed, with the NGX Energy and Consumer Goods closing 2.13% and 0.73% lower respectively, while the NGX Industrial Goods led the advancers after gaining 3.17%, followed by Banking and Insurance with 1.93% and 1.72% respectively.

Activities in volume and value were mixed, as stockbrokers traded 491.82m shares worth N11.92bn, compared to the previous week’s 586.94m units valued at N8.84bn, with volume driven by Financial Services, ICT and conglomerates. Specifically, the week’s volume was driven by trades in GTCO, Mutual Benefits Assurance, FBNH, Zenith Bank and Chams.

May/Baker and Ikeja Hotels were the best-performing stocks during the week, gaining 13.82% and 9.73% up respectively, closing at N4.20 and N1.24 per share on market forces and sentiment. On the flip side, UACN and FTN Cocoa lost 12.20% and 10% respectively, at N9.00 and N0.27 per share, purely on selloffs and profit taking.

 Outlook for the week

We expect a mixed trend on bargain hunting and reaction to early filers, while all eyes are on the expected September inflation reports and more Q3 corporate earnings. Also, investors are repositioning their portfolios on the strength of Q3 earnings expectations, just as players continue react to the earnings power and revalue of quoted companies on their earnings performance.  We note that income investors have sustained buying into dividend-paying stocks with high yields.

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Ambrose Omordion

CRO|Investdata Consulting Ltd

info@investdata.com.ng

ambrose.o@investdataonline.com

ambroseconsultants@yahoo.com

Tel: 08028164085, 08179547605

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